Buffett Expands Newspaper Business

Berkshire Hathaway Inc. ( BRK.A - Snapshot Report ) ( BRK.B - Analyst Report ) has completed the acquisition of the newspaper company Media General, which was announced in May.

The purchase includes 63 daily and weekly newspapers for a total amount of $142 million. CEO Warren Buffett also provided a loan of $400 million and $45 million of revolving credit. As a result of this financing, Buffett will gain control over 19.9% of Media General’s outstanding shares.

Per the deal, Berkshire will own all newspapers earlier owned by Media General except the Tampa Tribune of Florida and some smaller newspapers in the region. Some of the papers acquired include Richmond Times-Dispatch in Virginia, the Winston-Salem Journal in North Carolina and the Morning News of Florence, South Carolina.

Last week, Buffett announced the acquisition of yet another newspaper, the Waco Tribune-Herald. The purchase of the newspaper company held by Robinson Group will strengthen newspaper circulation in Texas. Currently the newspaper has a circulation capacity of 34,000 on a daily basis.

The acquisition is expected to close by end of July 2012 and will mark the third newspaper purchase by Warren Buffett over the past 10 months.
In 2009, Buffett stated that it was not very reasonable to continue his ownership of the newspaper business. He did not particularly like the practice of newspaper companies publishing news online for free, yet charging for the same in print. According to Buffett, online news posed a threat to the print medium.

However, Buffett’s outlook toward the newspaper industry has changed and the recent buyout of a number of small local newspapers points to the fact.

Last year in November 2011, Buffett announced the purchase of The Omaha World-Herald Company, publisher of Nebraska’s principal daily newspaper, for $200 million. The deal added the World-Herald, six other daily newspapers and several weekly newspapers to the company’s media business portfolio.

Berkshire’s media business portfolio also includes Business Wire and The Washington Post Co. ( WPO - Analyst Report ) . Buffett’s altered opinion indicated that he was optimistic about the newspaper industry and considered it to be an institution, which holds a lot of importance in regions with a strong sense of community. He also believes that newspapers, which have been facing stiff competition from digitization, can prevent waning sales by focusing on providing community news.

Berkshire currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares.